Hello, welcome to the Iren H1 2023 Results Presentation Conference Call. Please note this call is being recorded, for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. I will now hand you over to your host, Mr. Giulio Domma, Head of Investor Relations, to begin today's conference. Thank you.
W elcome, and good afternoon, everybody, and thanks for joining Iren conference call on the first half of 2023 results. We will start with the presentation, which will be given by our Chairman, Mr. Dal Fabbro, and our CFO, Ms. Anna Tanganelli. The Q&A section will then follow. Now, I leave the floor to Mr. Dal Fabbro. Luca, go ahead, please.
Thank you, Giulio. Good afternoon, everyone. Well, we start from page 2. You can see in the 5 clusters of the slide, the key highlights of the first half. First, the EBITDA was 8% up, thanks to a full recovery of customers portfolio value along with stronger hydroelectric volumes. Two, the organic growth, supported by a robust investment in regulated businesses, was partially offset by cost inflation. Three, the full integration of SEI Toscana, a waste collection company, was been allowing us to extract synergy. Four, NWC peaked by the end of June, in line with our expectations, due to transitional elements already accounted in Q1, that will reduce their impact in H2.
Five, as far as the fifth cluster is concerned, we confirm the strategic plan, approved by the board of directors in March 2023, and providing for investments mainly in green transition, services quality, and business expansion in our legacy areas. The higher investments made in the period, up 5%, allowed us to increase the new waste treatment capacity, revamp wastewater treatment plant, and finally, to improve the resilience of our electricity network. Now, if you allow me to move to page number 3, I give you the time to switch it over, to flip it over. Well, we can see that Iren is continuing to be on track on all sustainable key indicators. In particular, let me point it out, the positive achievements on material recovery, up 35%, and production of biomethane, up 67%.
The slight increase in carbon intensity, that stands at 327 grams per CO2 per kilowatt, is a temporary effect of higher thermal volumes related to a phase in of the new Turbigo line and lower heat volumes produced. By the end of the year anyhow, carbon intensity is expected to reverse in line with last year and meeting our business plan expectation and assumptions. We have continued to reinforce sorted waste collection to up 71% in the legacy area, and at the same time, we widen our local presence in waste collection and water businesses. Finally, it's worth mentioning that the distribution activities on water cycle continued, reaching 68%, enabling decrease on water withdrawals, -6%. Sustainable investments accounted for 80% of the total during this period.
Now, let's move to slide 4, shows the key economic and financial numbers of the period. In the first half, EBITDA reached the 606, so 606 EUR million, reporting a growth of up 7.8%. The result includes some positive and negative factors. One of the positive side, we reported, so a recovery in market profitability from 2022, particularly in electricity supply, worth over than EUR 60 million. A favorable energy scenario for renewable assets for EUR 35 million, led by supportive price and higher volumes in hydroelectric production. At least full contribution of SEI Toscana, as I mentioned before, which accounted for EUR 13 million in waste business units. Nevertheless, we have also a negative side of it.
If we flip over on the negative side, we find a lower district heating contribution for over EUR 40 million, as already expected in Q1, as a combination of lower heat volumes and a margin reduction. A halving of the NFP result to EUR 16 million from EUR 35 million in 2022, and a persistent inflation scenario affecting our operational costs, mainly in regulated business, which was not possible to recover in the tariff. The EBIT was 12% down because of the recognition of provisions related to Italian government's clawback on renewable prices for EUR 35 million. Flipping out this, the EBIT was in line with last year. We have technical investments grew by 5%, up to EUR 356 million.
Most of the investments concerned the network, while the largest increase was recorded in waste business units for the construction of a new treatment plant for material recovery. Net financial position at the end of March was equal to EUR 3.9 billion, increasing versus December year to end due to temporary net working capital expansion. The growth compared to the net financial position recorded in Q1, can mainly be explained by a payment of the dividend, which took place in Q2. I hand over to Anna to go through each business unit's H1 results. Please, Anna.
Thank you, Luca, and good afternoon to all of you. Let's now move to our business unit results, starting with the business unit networks on slide 5. Excluding non-recurring items that have positively impacted H1 of last year as a result of tariffs adjustments related to 2021, ordinary EBITDA reported a slight increase year-over-year, as the positive contribution from higher regulated tariffs of EUR 12 million in the period, was almost fully offset by the impact of the severe inflation scenario on operational costs, which accounted for approximately EUR 10 million. The majority of which, though, will be recovered through tariffs over the coming years. Gross CapEx increased by 12% in the period, mainly to further optimize the resilience of our electricity network.
As for water distribution, in 2023, we successfully progressed in our strategy to consolidate companies in which we hold minority stakes. In particular, at the end of March, we acquired 51% of AMTER, a water management company based in Liguria, with about 35,000 of inhabitants served. At the end of May, we acquired a majority stake in ACQUAENNA, a Sicilian water concessionaire in the province of Enna, with almost 180,000 inhabitants served. Turning to slide 6, the waste business unit posted a +5% EBITDA increase year-over-year to EUR 132 million. Such growth was substantially driven by collection, also thanks to the effective integration of our operations in Tuscany. As for our treatment business, over the period, we experienced a contraction in prices for recyclable waste and in brokerage margins.
The positive contribution from the phasing of the new organic fraction treatment plant, with biomethane production in Emilia, was more than offset by an overall more adverse energy scenario compared to last year. We continued to execute on our investment growth plan, with +35% of CapEx year-over-year, to support the development of several new treatment facilities. One of which is already in full operation, which is the wood treatment plant for pallet production in Vercelli, and 2 others will be phased in by year-end, which are the plastic and paper treatment plant in Borgaro Torinese, and the expansion of organic fraction treatment plant with biomethane production in Santhià. Moving to slide 7.
The energy business unit, ordinary EBITDA, decreased by EUR 11 million over the period to EUR 190 million, mainly due to a contraction in heat volumes compared to prior year, combined with a normalization of the related margins. Let's analyze each business line one by one. Renewables, which includes solar and hydro, posted a strong positive margin performance of plus EUR 35 million over the period, primarily thanks to higher prices and higher volumes on hydro. In particular, hydro production was up plus 100 gigabyte hours compared to prior year, while prices increased mainly as a result of a more effective hedging strategy.
Heat margins contracted by EUR 49 million year-over-year, as milder winter temperatures, combined with customers' energy savings actions, resulted in lower distributed volumes of minus 340 thermal gigabyte hours compared to prior year, while margins overall normalized versus 2022 exceptional levels. CCGT and thermal performance was impacted by halving in MSD contribution to minus 60%, almost, compared to prior year, with MSD at only EUR 16 million in H1 2023, in line with the nationwide trend, and by lower production volumes, down minus 12% versus H1 2022, albeit recovering from Q1, thanks to the full availability of all our plants in the second part of the semester.
These effects were partially offset by a positive clean spark spread in the period, higher than last year, notwithstanding an overall market average negative clean spark spread, again, thanks to our effective hedging strategy. Finally, the positive performance of our energy efficiency business continued also in H1 2023, with EBITDA increasing by EUR 11 million year-over-year. Going to slide 8. It is immediately visible from the chart that the market business unit substantially recovered its profitability in H1 2023, especially for what concerns electricity. This was achieved by 1, effectively managing contracts at expiration, starting from the beginning of this year. 2, focusing mainly on variable price contracts, which reached 70% of our portfolio, and on fixed components to reduce margin volatility.
3, successfully leveraging selected unhedged positions on the supply side to optimize margins, which led to a plus EUR 25 million extra marginality, which will not be replicable in the next 4 quarters. By the way, we remind you that the group has a profit at risk threshold equal to 15% of the entire energy supply chain. Such remarkable performance was achieved despite a decrease in overall volumes sold, due to a strategic decision to continue to increasingly focus on retail rather than business customers. Gas posted a positive result, despite the reduction in volumes linked to a mild winter season, combined with energy savings actions put in place by retail and business customers. Finally, IrenPlus reported a weak result year-over-year, linked to a contraction of energy efficiency projects.
Okay, now let's briefly comment the key P&L items below EBITDA, only very few quick remarks. Depreciation was up EUR 34 million versus prior year, as a result of the integrations made and the increase in CapEx carried out during the period. Other provisions, this is the only actually important point. Here we booked a EUR 34 million provision related to the Italian government's clawback decree on renewable prices introduced last year, and further extended up to June of this year, which is undergoing, as you probably very well know, a series of administrative appeals.
The 2023 extension in particular, which accounts for EUR 20 million out of the 34, seems to be in clear conflict with another clawback mechanism introduced by the European Union end of last year, which sets the price cap at EUR 180 per megawatt hour, instead of Italy's 58. We expect a favorable resolution on this last piece of the EUR 34 million, on the EUR 20 million. As for financial charges, H1 2023 saw a moderate increase in cost of debt, now at 1.8%, compared to 1.6% of last year. Tax rate at 26.2% benefited from the newly introduced tax credit for 2023 for high energy consuming companies.
As a result of all the above, net profit for the period was EUR 143 million, up approximately 4% year-over-year. Let's now comment on the net financial position evolution over the period on page 10. Net debt increased by EUR 173 million versus year-end, mainly as a result of EUR 356 million of net CapEx carried out in the semester. A temporary increase in net working capital, which I'm going to explain in a minute, and EUR 183 million of dividends paid in Q2.
Focusing on net working capital, the key factors here, all of whom are temporary in nature and will be almost fully reabsorbed by year-end, are in line with what we've already seen at March end, and include: not normalized, i.e., more unfavorable gas payment terms compared to historical conditions towards major energy suppliers across 2022, 2023 winter season. On this, we already secured 100% of new supply contracts for the new thermal year, 2023, 2024, at payment terms in line with historical trends, so we should see a payables normalization mainly in Q4. EUR 155 million of increase in tax credits over the period, related to Superbonus 110%. Also here, we already have agreements in place with several financial institutions to accelerate the related factoring process within year-end.
Finally, we report a structural timing shift on the cash-in of waste collection credits, following the change from taxes to tariffs in selected geographical areas, starting from beginning of this year. Overall, we expect approximately EUR 100 million in total to be reabsorbed within end of the year. I will now turn the call back to Luca for our closing remarks.
Thanks, Anna. Very rich presentation, but at the end of the day, we need to move to the guidance 2023. Let's focus on that. If you flip forward to page 11, guidance 2023, we see that we need to highlight the main factors which allow us to increase the EBITDA guidance versus the previous call. We expect over the H2 to have a solid contribution for the supply activity, thanks to our commercial strategy and an effective hedging activity. Higher hydroelectric volumes, now estimated in 1 TWh, and the full availability of the Turbigo thermoelectric plant. These positive factors will be counterbalanced, mainly by lower contribution from the MSD market.
Taking into account all of these, let's say, factors, we can summarize and say that the EBITDA is expected to grow up 10% versus 2022 full year. Total gross investment at EUR 1.3 billion, so EUR 100 million more than the latest guidance, and focused on regulated businesses. The NFP slash EBITDA ratio at around 3.3 per, thanks to the reduction of temporary effect on net working capital, and the cash-in from the minority stake sale of the gas distribution company. Having said so, thank you for the attention, and let's now move to the Q&A session. Thank you very much.
Ladies and gentlemen, as a reminder, if you would like to ask a question or make a contribution on today's call, please press star one now on your telephone keypad, and to withdraw your question, please press star two. The first question comes from the line of Javier Suarez, calling from Mediobanca. Please go ahead.
Hi, many thanks for the presentation. Several questions. The first one is trying to understand the reasons behind the increase on your EBITDA guidance to +10%. My understanding is that this is basically due to the better than expected performance in supply, and particularly on the electricity business. The question for you is. If we are assuming now an EBITDA growing by 10% by the year end, which is the impact that this may have at your bottom line? When I see the consensus, the latest available consensus, I think that the expectation is more for a mid-single digit EBITDA growth, and that is corresponding to a net income consensus along the lines of EUR 250 million.
Because of the fact that we are increasing the EBITDA guidance, should we assume that that EUR 250 million of net income is too low, or there are any other compensation factors that we should be taking into account? That is the first question. The second question is on the net debt to EBITDA guidance at 3.3 times. I think that you mentioned that that is including the proceeds from the disposal of a minority stake on the gas distribution network. Can you give the number of net debt to EBITDA without considering any extraordinary disposal? That would be helpful. The third question is on the dynamics, business dynamics, on the waste business.
It caught my attention, the argument that you are making on the treatment business of lower prices. If you can elaborate that, what do you see on the treatment and disposal activities in terms of volumes and then prices? Thank you.
...
Okay. Javier, on the reasons behind the +10% guidance, yes, you're right, there are two main factors. One, as you correctly said, a better performance than expected, so full recovery of our market business unit profitability. That's absolutely right. Plus, though, also a better than expected performance on hydro. As you might remember, we said several times that we had assumed in our guidance, hydro volumes, which were only slightly up versus last year. In fact, now we see almost for the full year, 200 gigawatt hours more than in the previous estimate, so in the previous guidance. There is also some minus which counterbalance, like, a still decreasing performance of heat.
Let's say on the plus side, the market business unit performance and hydro are the two main factors. As for the impact on the bottom line, what I can say is that this last 10% year-over-year will translate into a similar growth also at the net income level. I would say that. As for the sale of gas, the EUR 100 million, I don't want to necessarily don't answer your question on the 3.3 times. The point is, we will stick to the 3.3 times, no matter what.
Right now, we obviously factored in because that's the process is ongoing, is on track, as Luca was saying earlier, and then he can elaborate further, we have binding offers received over the last few days. We still expect closing well before year end. In any case, within December 31st. If we were to see signs that this might not occur, obviously, we will put in place other actions to still maintain our 3.3 times and at that an EBITDA ratio guidance. That's for sure.
Nevertheless, we expect to sell the gas participation before the end of the year. As Anna said, we already have offers, binding offers. We might declare in the coming weeks also a big news on that. A confirmation that we are going to select one of these binding offer in order to close down by, let's say, November, December this year, the operation. We do not put in doubt this operation. Nevertheless, we have a plan B and plan C to anyhow, maintain the guideline.
On your last question then, on the treatment business. We foresee the phasing of two new waste treatment plants, the biomethane plant in Santhià, and as we said also earlier, the plastic treatment plant in Borgaro. However, as we also highlighted in the presentation, we see prices going down by almost 10% year-over-year, which are driving the negative performance say, in the semester. I hope we addressed your question, Javier.
Yeah. Okay. Many thanks.
The next question comes from the line of Roberto Letizia from Equita. Please, go ahead.
Yes, thanks a lot for taking my question. The first one, very easy, just a clarification on Javier's questions on the net income. The 10% growth that you mentioned, does it on net income, reflecting the trending EBITDA, does this reflect and include also the EUR 34 million provisions that you booked in the first half? Or that 10% works on a sort of adjusted level in your mind, so many visit, this exclude the EUR 34 million. Can you just clarify this, just to have a better perimeter of this indication? Thanks a lot. I would like to know a better, a little bit better, more the flexibility that you have in managing the overall level of debt.
I'm very pleased to hear that you have a plan B and a plan C. I'm just wondering if any of the 2 additional plan may eventually occur, even if you do the disposal, at the end, taking your final debt level below EUR 3.3. Maybe you can a little bit better clarify on how you intend to manage those plan B and plan C, that I think maybe it's a question of time, but maybe you want to implement them in any case. Maybe just little bit on describe what kind of alternative measure this consist of, to give you flexibility on the debt management. I would like to have a quick comment from you, if possible, on the antitrust investigation, on the pricing for the district heating.
What kind of risk may be, it may be none or maybe some there may be on this, if, if in considering that this is always under the eyes of regulator for eventually even possible regulatory changes. I don't see. I don't know if you see any risk for that. A final one, if I may, if you can tell us on, if, if any, do you intend to change your hedging procurement policy and your variable to fixed exposure on gas procurement, mainly, for the next season? Thanks a lot.
On your first question, the guidance, the 10% guidance, sorry, 10% EBITDA guidance, does include the EUR 34 million, but in two different ways. As we said before, the EUR 34 million is made up of EUR 14 million linked to 2022, and then EUR 20 million linked to 2023. We see the two pieces or the two portions of the 34 having, in our view, different levels of risk. We see the 2022 portion to be at higher risk compared to 2023, simply because, as we said, the 2023 clawback conflicts with another clawback mechanism, which was introduced at the European Union level.
The appeal process, we understand now has been submitted to the European Court of Justice. I say, it has a more articulated and more complex administrative process. What we factored in in the +10% is the first portion, so the EUR 14 million, while we assume to still keep the EUR 20 million back as a provision. Also because the process, the administrative process, probably, that's our understanding, won't conclude within the end of this year, so might probably drag also in 2024. There is a portion, so the EUR 14 million is included in the guidance, while the EUR 20 million are still, let's say, in our forecast for 2023, but below the EBITDA, so as a provision.
No, yes, but-
I hope I-
I'm not... No, yeah, sorry, what I was asking is about the net income, not the EBITDA.
Understood. The net income at that point would include both. The first, the whole thing.
All right. All right. Thanks a lot.
Yeah.
Thanks a lot. Thank you.
Yeah. No problem. On the plan B and plan C, so what we meant is, obviously, we gave the guidance of 3.4 times, and 3.4 times, 3.3, sorry, times, and as you very well know, we tend to stick to our promises. As I said, first of all, we don't see a risk now of the sale process not going through at all. This might not mean for maybe reasons, but not only depend from us, it may be delayed and fall after our, let's say, target of the end of the year. That's one thing to be said.
Right now, I think the visibility of it not going through at all is high in the sense that we don't see that happening. It might simply be delayed. Having said that, if it really then ends up not happening, which we hope to be at a very unlikely scenario, we can activate actions, as we've also demonstrated last year, to be able to implement, which can go along 2 different axes. One, we can try to accelerate even so further, the factoring of tax credits. As you know, these tax credits can also not be sold, so not be factored at all.
We could also keep, and that's our intention, by the way, to keep a portion to offset, following year's taxes, so that can be used to compensate year T plus one taxes. In case needed, we can, let's say, implement the other option, which is to factor them in a bigger amount. That's one thing we can do. Not to keep a portion for future compensation, but accelerate the further factoring. Second, obviously, as really last resort, to, let's say, slow walk some of the investments which have lower priority and move them into 2024.
Concerning instead, your question concerning the investigation of the authority, Antitrust Authority, let me first say that the investigation is focused on extra profits and greater clarity on the method of setting prices. There were no extra profits, and tariffs are set in the right way with the avoided cost method. Moreover, it is important to highlight that in 2022, Iren put in place several measures to support actions for the vulnerable customers, so the visiting customers, introduced starting from the emergency of the energy crisis, with bonuses and built-in installments. In other words, we put in place all the mitigation, even though we're not requested by law, and we offered the bonus, and we distribute several millions EUR bonus on that.
Concerning instead, your question on whether or not we change our procurement and hedging policy. No, our strategy is to maintain the par at 15% of the entire energy value chain. We closed the contract for the procurement gas for all the thermal season to 2023 and 2024, closing the positions. We are risk-averse. We do not like to, you know, to do speculative activities. We are an industrial group, we are not a hedge fund.
All right. Thanks a lot.
The next question comes from Davide Candela, from Intesa Sanpaolo. Please go ahead.
Hi there, thank you for the presentation, thank you for taking my question. I have three. The first one, sorry for coming back on this matter on net income. Basically, starting from 2022, having this 10% increase in the EBITDA, translating into same growth in net income, where the basis you are calculating this is from the reported net income you had in last year, so something like in the region of EUR 226 million, or in the adjusted terms? Looking at if we start from the reported basis, we should have the same level of last year, so a flattish trend in net income. Just a clarification on that. The second question is on the net, the devolution, specifically on the working capital.
If I remember correctly, in the Q1 , you said that there were something like EUR 200 million, more than EUR 200 million of assets that could be recovered along the year, and now you are guiding for about EUR 100 million to be recovered in net working capital. I was wondering if in the Q2 was happened actually, this partial recovery, or you had some further movements that will not allow you to fully recover those more than EUR 200 million you got in the Q1 ? The third question is on M&A, just an update on EGEA.
If just to know if you are cherry-picking some assets or how you are proceeding with the company in discussing for a potential deal for you. Thank you.
We start from the end, just for simplicity. For the M&A activity concerning EGEA, we made an offer a month ago. We are in short list with another bidder. We are interested at roughly 90% of all the assets. We exclude from, let's say, our offer, a couple of companies because we consider them troublesome. We basically structure the offer in such a way that the impact on our cash and, let's say, equity, will be very, very seriously reduced. The offer is based on a strong discount, a reduction in the credit of the banks versus EGEA, in order to make this operation available.
In other words, if they will accept our offer, it's gonna be a good bargain for Iren, but without jeopardizing our debt position. That's very important. It was one of the pillar that we set when we made the offer. This is it. For us, it's an industrial operation. It is not a financial operation, so it makes sense in a way that we pay very little. We don't jeopardize our debt structure, and we can create some synergy. As simple as that.
Okay.
Right.
On net income, I was trying to make to follow your calculation, because if we start from. First of all, the growth, let's say, to have the similar growth at EBITDA net income level, is applied, we apply this to the reported net profit, net income, and not to the adjusted one. If I apply the percentage, I don't get to a flat amount, so I'm not quite sure what is your calculation. In any case, as I said, we apply the 10% or a similar percentage, is slightly higher than 10%, but more broad in that range, to the reported number. I'm surprised you got to a flat amount, but I don't know. Maybe I'm missing something.
On the second question, working capital. The point here is that the main reason we revised EUR 100 million, but it's very simple. First of all, in March, we were expecting to factor more tax credits. Now, having also relooked at our EBITDA and the overall working capital development for the second semester, we have revised that estimate for two main reasons. One is that we probably will keep a portion, as I said earlier, unless we need to do otherwise, to compensate taxes in the next years. But also we have more work, simply. The net amount has changed also due to that reason. The second semester, there is an acceleration of work.
The tax credit amount is building up, as you have seen also in the semester. Overall, versus end of last year, there is a plus EUR 155 million, and that number is net already of factoring, of, let's say, credits we factored in the semester. It means that the activity is really picking up, and will continue to pick up in the second semester. That's why we, let's say, we revised the working capital absorption. Still missing anyhow, the net debt amount we had in the guidance.
Thank you. Thank you for the answers. Just to, a little bit of follow-up on the net income I was referring to, of course, the reported ones. Something like more than EUR 220 million +10%, I believe the consensus is already factoring those numbers. You are still projecting, despite having lesser, I would say, EBITDA amount compared to the new guidance you provided. I believe this is only due to the provision that Roberto was mentioning before.
Correct.
Okay.
Yes.
Okay.
Unfortunately so. I mean, you've been smarter than expected, but it's, it's true that, unfortunately, the EBITDA upside is being almost fully eaten up by the provision. That's, let's say, in a nutshell, that's the story. Plus and minus, the minus is because, as I said, we might be slightly higher than the 10% in terms of net profit year-over-year. Look, say, broadly speaking, yes, you got the point.
Thank you.
Ladies and gentlemen, we currently have no question coming through, so as a final reminder, if you would like to ask a question, please press star one now. We have another question from Roberto Letizia on Equita. Please go ahead.
Yes, sorry, Anna, just to be 200% sure, but actually, the EUR 34 million provision, basically, in any case, then EUR 14 million of that refers to 2022 and not 2023. EUR 20 million, of course, is 2023, but these are non-recurring. Basically, you're driving to a net reported income of EUR 250 million, but adjusted net income is more in the region of EUR 270 million. Am I correct?
Correct.
Because these are non-recurring revenue, they won't be there in 2020, 2024, and not even in the second half, so far. Basically, the underlying net income is basically EUR 270 million.
That's correct.
Is that correct?
That's correct.
Okay, thanks.
Yeah, yeah.
Thanks a lot. Thanks a lot, Anna. Thanks.
No problem.
There are no further question. I will hand it back to your host to conclude today's conference.
Well, thank you very much for the questions. I mean, it was a very fruitful discussion. Well, thank you very much indeed. Have a great day. Bye-bye.
Bye-bye. Thank you.
Thank you for joining today's call. You may now disconnect.